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tv   Market Makers  Bloomberg  February 25, 2014 10:00am-12:01pm EST

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>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> mountain crumbles. exchanges top bitcoin vanished overnight. what on earth happened? what does it mean for the virtual currency? >> bruce richards, cofounder of one of the sick -- one of the most successful hedge funds on the street will be what that's -- will be with us. yoga, and meditation has become common practice for wall street's biggest names. you will meet the man who taught dan lo how to seek permanent peace.
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good morning. you are watching market makers. i'm erik schatzker. >> i'm stephanie ruhle. if it is not exciting for our audience, it is exciting for me. for the first time in almost three weeks you and i are together. i had to come back today, because the fact that we are talking about how dan loeb found permanent peace is absurd. if i think of one thing, dan lo, permanent peace to my not so sure about that. >> just so long as he is at peace with himself. >> there you go. somebody has been doing his yoga. from get to the stories around the world. some revelations about what cause the departure of pimco ceo mohamed el-erian. according to the wall street journal, his relationship with cofounder bill gross deteriorated in the last year. at one point, the two squared off in front of two dozen colleagues because of a disagreement over bill gross's management style. gross has admitted he can be difficult to work with.
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maybe he is a little bit like me, eric. will cut, jpmorgan about 8000 jobs later this year. what is the main problem? falling demand for refinancing. since the start of the year, jpmorgan has announced more than 24,000 cuts in those two units. that is a serious number. and all those holiday discounts did not do much for macy's. the department store chain in the u.s. reported fourth-quarter sales that missed estimates. macy's earnings to do better than expected, thanks to lower costs associated with job cuts. and about this, if macy's did not get it done over christmas, what does that mean for jcpenney? >> good question. in the meantime, another top story this morning, one of the world biggest it going to -- bitcoin trading platforms is gone. here is what you see when you go to their website, nothing but a blank age.
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dollars of billions of in bitcoins may have vanished? it is definitely a down today, disappearancethe of mtgox. >> what we know is there is a we just sawing that there. there was an announcement for an acquisition, but then that vanished again. what we do know is that nobody can get to mount cox -- mt. gox. we are still waiting for clarity from the company. >> what does it mean to the bitcoin world if mt. gox is gone ? and furthermore, if the reason for their disappearance is this alleged, or purported loss of hundreds of billions of dollars in bitcoin? >> the bitcoin community rallied
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very quickly last night when reports surfaced that mt. gox was on the edge. initially, a group of companies posted a statement on the website talking about insolvency, but quickly revise that to take the word out. but they were bending over backwards saying, look, our customers are secure. we have very good consumer protections in place. the funds are safe and so forth. really trying to defend the good name of bitcoin. time will tell if they are successful. >> at this point, however many hours in we are, does bitcoin have a good name? >> that is a good question, and certainly this will be mentioned in the future in the same breath as silk road and illicit transactions and that sort of thing. it may be, as the advocates like to argue, that these are growing pains and you've always got some bad apples. that, by the way, is an argument that we have heard occasionally from wall street. there is reason to believe you could overcome this, but
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certainly from a public perception standpoint, bitcoin is not doing well right now. >> hang on for a second. i want to introduce our guest host for the hour. bruce richards, who has been here with us many times. you run an $11 billion hedge fund who specializes in distressed investments. he is the ceo and cofounding partner of marathon asset management. it is great to see you. you together with me and stephanie have been hearing carter talking about bitcoin and the disappearance of mt. gox. i know you are not a bitcoin and uzi is, but i'm dying to know what you think of these developments and what they say for the prospects of alternative currencies. >> it is pretty apparent what has happened. a currency is a pretty hard thing to create. look at the euro. it took a decade or two to create the euro, and a lot of work by 17 countries to keep it together as the reserve currency backed by the countries.
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to have bitcoin, which you produce on a computer, and no one really knows how to produce it decides maybe a few people who have algorithms figured out. and then to traded and have that be a currency that you can exchange is a bit of a stretch. don't you think? rex i do, but bitcoin is the current -- >> i do, but it going is the current netscape. netscape opened the door for the world wide web. could bitcoin be disruptor? it doesn't work, but behind it we will have a revolution? >> i think it is closer to a common tool than it is a real currency. >> i like common tools. click here is one of the things i've been twisting over in my head since i first saw this news -- >> here is one of the things i've been twisting over in my head since i first this news last night. were people really naïve enough to believe that just because bitcoin was an alternative currency that it would be somehow immune to the foibles of all markets? rockets are run by people.
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someone will always lie, cheat, steal, and defraud. if that is what happened at mt. be -- whyhy should we should we be surprised? stephanie, i bet you have a bitcoin wallet. but i cannot say that, and when --s began i hated on it read left, right, and center. but when you see companies like paypal start to get worried, i mean, visa and mastercard took their lumps in the beginning. our visa and mastercard perfect? no. >> that is a bit different. visa and mastercard are a payment arrangement for you to be able to purchase and they have arrangements with the banks to pay back. this is something very different. is it something, which on your byputer you can create prorated out rhythms. and then it is traded and people think that businesses and people
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will want to give it value. i think it is a ponzi scheme. has legitimatet scope within society. and i don't think it is a viable currency. >> ok, but that is bitcoin. what about what stephanie was alluding to, the idea that perhaps there is too much -- and this is something i know you are familiar with by virtue of your investing and the currency trade you have to execute worldwide. is there still too much for chin in the system? in other words, to meet people along the way taking their marching, exacting -- taking their margin, exacting their toll? the point of bitcoin is that it is frictionless. >> i don't believe it is for chinless. -- frictionless. fraud, very is a simply. bitcoin is a fraud. i believe that bitcoin will not have illegitimate place in history as a currency.
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>> well, there you go. but i got -- >> i guess we got that question answered. say, listen,e bitcoin is used to smuggle drugs, to buy illegal things -- people use real dollars for hookers and drugs, too. i mean, they do. >> people use real money and real money is something any business or bank would accept. besides, bitcoin is not accepted by the banks. it is not accepted by business at large. there might be a few businesses who accepted, who have invested and want to see prices go up. but i don't believe bitcoin will be used as a currency, which businesses and people will want to have as a store value, or to trade them. i believe it is a fad and i believe it will go away. recently on've seen the exchange's first evidence of that. >> a fad, a fraud, no place in history.
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i love it. bruce, we will continue the conversation in just a couple of minutes. worldrichards, one of the top-performing hedge fund managers. he is with us for the hour. >> and live from wall street, power players don't need a computer to check their positions. you know what i'm talking about. the latest craze. jo the and transcendental meditation. i'm not joking. -- yoga and transcendental meditation. i'm not joking. ♪
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>> you are watching "market makers" here on bloomberg television. stephanie and i have bruce richards as our guest host for the hour. he is the cofounder and manager and ceo of marathon asset management, one of the top performing hedge funds in the world. fundpecial opportunities
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rose almost 20% in 2013. we were just talking about bitcoin, but now it is time to talk about real opportunities out there. you heard what bruce had to say about that. let's talk about the ukraine and venezuela. these are the geopolitical flashpoint at the moment. of course, there are still others lurking in the background. people are liable to look at the action of the ukrainian bonds, for example, or venezuelan bonds, and say, oh, there is a distressed opportunity. yearnian bonds, the 10 bond at 9.5%, i should jump in there. what do you think of that opportunity? ,> ukraine is very different first of all. they will have either the backing of russia or the eu with the united states playing a role as well. the $15 billion that they will need to kind of hold them over, and installment payment to help make debt payments and stabilize their economy as they have
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elections and normalcy is brought back is one thing. venezuela, i think, is a completely different equation. deficits,has trade has budget deficits, has a current see -- has a currency which is being devalued day after day. the graymarket or the black market is very different from the current official rate. >> what does that mean, ukraine, money good and venezuela is money bad? >> when you look at your isinoes, the first failure greece. after that, you look at portugal and then cyprus and ireland as the weakest countries on that domino chain. obviously, germany being the strongest of the mall. greece defaulted. as we know, ireland has come fully back and is growing again. that even has proven
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greece will be the fastest-growing economy in all of europe if you listen to world .ank rejections when i look at emerging markets, they are under a lot of pressure. when you look at what happened in the month of january and over a six week time frame, you had latin america, argentina, venezuela, and in brazil that is under perfect -- under pressure. and eastern europe came under pressure. it was mostly ukraine followed by turkey. and you could throw in hungary as well, and the south african press as well. on the whole of the emerging markets, the most likely to restructure his venezuela. are very likely to take a bailout package. and officials from around the , russia, eu and the u.s. equivalent of the troika will be
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there for the ukraine. will there be a for venezuela? i don't think so. not coming from the u.s. or the eu. probably their closest ally is not a position for that. you have a long stretch to get to secure oilnt from venezuela. i don't think china will be there until much further down the line. >> we recently sat down with steve schwarzman and were talking about investing in places like ukraine, russia, venezuela. how do you feel about investing in some of these regions with governments that are unstable, ok, or you just don't trust them? a veryt is -- >> that is good point. when you invest in places like venezuela, or invest in places that have less rule of law, you have to recognize that and you have to adjust for that. we had marathon like to enter from a distressed situation. if you can buy the debt at a
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fraction on the dollar and understand what the recovery values might be for restructuring, then you are a lot more confident in buying. you look at a place like russia, back in 1998 they devalue their rulebook from six to 26. the local rule market defaulted and basically paid to nothing in return. of the sovereign bonds and the city of moscow bonds continued to pay and never made -- never missed it coupon payment. understanding where you are and the structure of what is able to beat repaid and what cannot be repaid -- understanding where you are and the structure of what is able to be repaid and what cannot be repaid helps in the structure of the recovery process. >> bruce, i made a list for myself of market conditions that i wanted to throw at you. low interest rates, healthy economy, rising markets, ease of financing, the falls, no force sellers, would-be buyers, positive mood in the equity
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markets. as a distressed investor, under those kind of conditions where are the bargains? >> that is a good question. it is becoming harder and harder to come by them here in the u.s. a lot of precrisis lbo companies have extended their debt out. there are liability management trades to get involved with and some good opportunities. there is one big restructure potentially here in the u.s. at some point in this calendar year , an energy producer in texas. but the biggest set of bargains globally to my believe, is in europe. it is still in europe. feel that -- i'm willing out the broken record. we have been having this conversation together for two years. his opportunities in europe, you are saying, come to pop up. these banks are going to deal ever. when?
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>> it is going to happen. you would not believe what is going on in europe right now. there are 28 countries in the eu, and there are seven that dominate this list -- germany, u.k., france, italy, ireland, spain, and netherlands. and this year, they have been busier than ever selling down the banks and appeals. >> who is selling? for european banks are selling in size. bank,n i look at deutsche should i be noticing that they are losing money, that they are having to sell assets that they own at horrific levels to you? is that something i should have my eye on? >> you should have your eye on that, but here is what is happening. here is the broken record. here is the boy who cried wolf. they could not sell in 2011 or 2012. but today, they couldn't sell. they can sell. what has changed? number one, time. they put in provisions. all banks are operating at par.
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be -- the reason they could not sell before was because they did not have the right reserves in place. are not taking big losses because they have the right provisions in place. ecb for thethe first time ever is now the bank regulator. they are putting in lace the asset quality review. what does that mean? it means reviewing the assets. >> it is a stress test. >> it is a stress test for their assets. they are focused most on nonperforming loans. armani and others, is this a positive for them to get this off the books? >> when you have a nonperforming , you have core tier one effort that could be six percent, eight percent. you leverage of your assets. you have a lot of assets and
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that is how the banks are leveraged. but when you have an npl, guess what happens. that core tier one equity has to go against npl. it is a non-interest-bearing loan that is tying up your equity. to use aot allow you return on equity. what do shareholders want? they want return on equity. if they have npl's i'm a they want them off the books post-up >> it is hugely incentivize. >> -- off the books. >> it is hugely incentivize. >> the ecb before was not the bank regulator. >> it is actually a win-win. >> it is. and the list we are betting on right now in europe, we are confident of and doing our work. we are looking at the loan package will stop we are inside the banks looking at the loan files and putting in bids. it is package after package after package. >> i love it. >> we are the broken record, and bruce proves to be the master
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dj. >> indeed, you are. who knew cinderella was showing up today? rex we are taking a short break here on "market makers." bruce richards is our guest host. when we come back, a little more on t-mobile. it is covering service plans. it could be a great deal for consumers. no bargain for investors, however. ♪
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>> we are approaching 26 past the hour. it is time for bloomberg's on the market. stephanie, think we should talk about t-mobile, because we are also enamored of john ledger. >> who isn't? t-mobile reported a net loss for a third consecutive order. accounted forns the largest portion of the loss.
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john is out there trying to get super aggressive. million.t $20 however, if he can lure enough competitors customers, maybe his losses will be less. >> i think he should hire macklemore at a party. ♪
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>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. "marketre watching makers" on bloomberg television. we are back with bruce richards, the ceo of marathon asset management. if i'm notsay mistaken that the most important story in washington right now is the story -- or nonstory -- about the reform -- or not reform -- of fannie and freddie. y? >> because it is washington meets the investing community. it is the most dynamic story of
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2014. the reason this is so important is the government provides 90% of housing finance. we cannot tinker with housing finance. you tinker with housing finance, you tinker with housing. that is why it is important to main street. why it is important to the government is because we run a pretty big deficit here in this country. the government has purdue well taken overall cash flow of fannie and freddie. -- has pretty well taken over cash flow of fannie and freddie. the investment community believes they are not entitled to it. the reason this is important to the investment unity is because there are common shares and preferred shares to trade. and none of that cash flow is in a sitting -- is benefiting the shareholders because the government is taking it all. >> brad is a former lobbyist, a former hill staffer, a former hedge fund advisor that now works for bloomberg. that youbruce right,
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cannot touch housing finance? >> he is correct that this is one of the biggest issues in washington right now. can it be touched? congress will touch it. ofy have two pieces legislation, one in the house and when the senate, and the senate banking committee is going to release a third bill sometime in march is likely. the hedge fund you described will be watching to see if any of the grievances will be discussed in that legislation. but what can and should be done? -- >> what can and should be done? >> e-government -- what should be done is the government should put about $130 billion into conservatorship. of $130 billion is about $13 billion a year. over four or five years, that will accrue up to $189 billion today. what happened in the last couple
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of months is the government is now taking back from the agencies, from the cash flow. they have fully repaid. >> the difference is, though, is they have not been repaid. it is the dividend and not principlprincipal -- e. and that is why they are now suing. an action to be aware of his june 23 where the court in washington will get together and the judge will decide whether this case should be dismissed or should consider new -- could -- whether this case should be dismissed or should continue. this ideareposterous, that they are demanding a share of the cash that is currently being paid to the federal government? >> when you get in front of a judge, anything is possible, and they do make a good case. but i also think this is playing out in the court of public opinion right now.
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you have -- >> ralph nader. >> you have ralph nader, and everybody is putting in their two cents. as a result, the stocks are fluctuating wildly as a result. if you arehink that a cynic, or maybe the hedge fund are enjoying this because it is creating opportunity for investors to profit one way or another. right, are you a cynic? >> when fannie and freddie ran into trouble, the u.s. government had one of three choices. they could do what they did to general motors and the witches to put the company -- which was to put the company into bankruptcy in a prepackaged bankruptcy filing. they could put the company into receivership, which is then taking five dollars trillion of debt that fannie and freddie had combined and put it on a u.s. treasury balance sheet, which it did not want to do. and receivership is basically
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winding down a company. or they could put it into conservatorship. they chose conservatorship. that means looking after the company before they return it. the 130 billion dollars that they put into the company is the principal. they have been entitled to about $59 billion in interest. they have gotten 100 $89 billion in cash flow distribute it to them. they have gotten the principal interest, or more interest than they deserve. and the cash flow that we just alluded to came as a third amendment put in place years after when they become prof -- when they became profitable. you cannot confiscate the company from the country. on let's assume you are spot , right on this. if this plays out in the court of public -- of popular opinion, will you get a fair shake in terms of your view on what should happen? >> it is not my view. there have been lost -- lawsuits
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filed. you can call it a mutual fund, or you can call 13 other lawsuits by other investors. some are banks, some of these investors are individual investors have come together in class action suits. at least a dozen lawsuits that i'm aware of have been filed against the united states government for having taken all the cash flow of the company. i think,igger picture, is what happens with housing reform. housing finance reform. you can tinker with it, of course, but you cannot have 90% provided by the agencies and 10% provided by the private sector and take away so much so that the agencies are not providing housing finance. >> i don't know that anyone is talking about going from 90% to zero percent in the short run. >> even precrisis, which was 90% to 66%. two thirds agencies and wondered
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private sector. there is still a bit to go. and onehirds agencies third private sector. there is still a bit to go. on a go forward basis they should not be running a big portfolio. with five dollars -- with 5 trillion dollars in assets, they should be the insurer of mortgage housing. and the private sector solution should just come in with the capital. >> i agree with you. we will let you weigh in. >> one thing you have to remember, right or wrong, is that congress will decide this issue. the course will play out and that may take years, but congress will decide -- the courts will play out and that may take years, but congress will decide sometime this year with the legislation. and if legislation gets done this year, the case will be solved. however if it doesn't, then we will go into 2015 and do it all over again. >> in your experience, is congress going to make that decision they found the facts here, assuming bruce has the right fax? or based on popular opinion?
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congress has said that the hedge funds will not profit off of fannie and freddie. but because that makes a great headline. >> it does -- >> because that makes a great headline. >> it does. having an impact, and i promise you the members in washington are taking it all in as they go through this process. >> the hedge funds that you are referring to are firms that manage money for pension plans. >> i agree with you, but do you actually think the politicians are digging down into who exactly is this hedge fund or mutual fund, or are they saying, i will not let the rich guys win? >> i think we are missing the whole point. whether we have public pension plans or private pension plans, endowments or foundations, the point is, we have rule of law. this country is based on rule of law.
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we are not argentina where we go in and take over an oil company, or venezuela where we confiscate certain assets. we are the united states of america. we are based upon the rule of law. >> the gm bankruptcy, isn't that how the cerberus's of the world felt? and in the end, they did not necessarily feel like it went well for them. it was not necessarily about the rule of law. >> it was about the rule of law. private capital can win or lose, but the government chose not to put it into receivership where they take it over. it chose to put it into conservatorship. where they get a 10% rate. when they did that, and was set in stone, structure would work. and now they are taking all , which we don't think is the rule of law. >> when they put it into conservatorship, the navy changed it to the sweep rule, now congress is going to weigh in. -- then they changed it to the sweep rule, now congress is going to weigh in.
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>> the debate over fannie and comes down to the rule of law. >> i guess that is the question. >> a judge is the rule of law. >> congress sets the laws, and the court decide how those are put in place. >> our producer is saying, must break. >> brad barker, bloomberg industries, thank you for joining us. ♪
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>> welcome back to "market makers." we are back with bruce richards, founder of asset management -- marathon asset management. next week, he is being honored by an industry group that helps victims of child abuse. you are being honored next week with the karen award. tell us about it. >> one thing i know a lot about
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his risk. those that are at greatest risk are our children. at those that are out -- are risk are children who come from abusive households or have been abandoned. we are focused on helping children that are most at risk. our industries come together. it is an expensive ticket for next thursday night, but very well worth the cost. >> people want to go to see you, bruce. pretty cool is a guy. he will be inducted into the hall of fame and is coming into town for this. he is a victim of domestic violence. he grew up in brooklyn. a city cop that was pretty abusive in a household. he grew up around that, and he spends a lot of time on this issue. and his focus is hedge funds care and he is presenting me
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with this. >> well, congratulations. >> we know that philanthropy is important to you and we can keep talking about it, but one thing we have not done -- we have talked about bitcoin, venezuela, ukraine, fannie and freddie. what do you as an investor considered to be the eagle best opportunity out there today? >> we have talked about it. fannie and freddie. >> i thought you consider that the most important. >> it is the most important, but also has enormous upside equity valuation is the rule of law is upheld. >> that is why you are so passionate about it. >> it is a pretty good investment. number two, nonperforming loans in europe continue to be not as big of return as something like fannie and freddie, but a pretty good risk reward that we think is somewhat uncorrelated to what is happening here in the states with equities. number three, the banquet -- the bank equities over in europe
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want to be capitalized. we can come in and discount the book value. and also pretty good opportunity. >> but as far as european banks go, in order for this thesis of yours to play out, the stress test that the ecb is conducting has to be credible. and the first to stress test that the europeans ran were just unbelievable. why are you confident this will go better this time? >> this time it is the ecb. the last time it was -- what is the name of that shop? nobody knows. >> the difference now is that you have the good name of mario draghi. >> right next to that building where mario draghi sits is a brand-new building with thousands of bank examiners that have been hired to do this job. this is a year-long stress test that comes out in october or november of this year and they will not be messing around. they will tell you what assets fit the quality of what the banks should hold. >> would that be called the
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death star? bruce, thank you so much. what a great calmer station. -- what a great conversation. into why, we will dive someone like superstar dan lopez saying things like this. >> yoga quiets the fluctuations of the mind. ♪
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>> welcome back. i'm stephanie ruhle. wall street is known as a kill or be killed kind of business, a meat eating manna place that is about winning at all costs. but increasing, some of the bold names in finance are turning to a tradition that encourages people to search for herman at ,eace, people like dan loeb talking about the power of meditation and yoga. as a wheeldescribed with many spokes that come out of it, and at the center of it is your heart, which is your
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moral grounding. click here to tell us more about why so many high-powered finance folks are turning to yoga is eddie stearns. he runs a new york studio, running a program for yoga in schools and has worked with none other than dan loeb. eddie, i think traditionally people would not connect aggressive wall street or's with the practice of yoga. they would not connect with yoga. everyone likes to reset their button every once in a while. perhaps, every day they connect with themselves to find some sense of inner quiet and sanctuary to reboot their perspective on their life that they have every day. >> reboot their perspective. >> yes. >> now, you say that yoga can and, perhaps should do my work for everybody. if i look at the yoga protection
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at the yoga look practitioners within the finance and business community -- dan gross, steve jobs. these are intense, incredibly intense people. today, perhaps need yoga more than the rest of us? >> no, they don't need it more than the rest of us. they need it the same as the rest of us. all the people you named are incredibly creative people and visionaries in their fields. what happens with yoga is when you get quiet and you reset your perspective that can to yourself everyday, you enter into a frame of mind that looks at things from a different perspective. you can see things differently and clearly, and can problem solve, choose wisely, make creative decisions about situations that people would not normally think about. >> are you think of those folks -- and i should add guy hands
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him a private equity investor at terra firma. would they be as successful as they have been without the influence of yoga on their lives? could these people be what they are today without their search for inner peace? >> i think people are already what they are dumb about the yoga and meditation helps pull that out into the active world but the yogaare, and meditation helps pull that out into the active world. >> one more time. >> yoga is going to connect dan loeb to his potential personhood. people likeyou see that start to make the turn? you are talking about boys who maybe 10 or 20 years ago saying, i read own -- i read, "on fire of the vanities" and i want that life. a minute,ey say, wait maybe transcendental meditation should have a place in my life. >> that life is empty. only chasing after him fast cars
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-- after fast cars or money or power or fame is essentially empty. it will not at the end of the day bring you fulfillment. what will bring you fulfillment? that is what we are all looking for, essentially. >> were you surprised that in the last couple of years these characters who had not been knocking at your door were saying, all of this money that have made and this life have i -- i have built has left me empty? dan loeb has been practicing with me since 1995. that was the year he started his fund. he has been at it since then. i get these people who come in and they do not give up the other lifestyle that they have. they still do yoga. >> that is the thing. you get all sorts of people. got 24 hours a day, seven days a week. what happens when more hedge managers and more bankers -- >> build a new studio. >> but you cannot do it all.
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what do you do when there are too many people who want your instruction? >> i don't know. i have not gotten there yet. >> really? >> yes. >> infinite scale. >> infinite scale and infinite creativity. >> do the people who come from this background have the patience to achieve what you achieve? i can sit year and say, i want to do that. and then i'm going to go home today like i have 100 times the for and try to meditate and fail at it. do you find a people who come from the financial industry, who may be success addicted, adrenaline addicted, struggle to achieve that balance? >> not necessarily. you don't have to be doing this all day long. you just need to take 15 to 20 minutes, or if you can, half an hour to an hour, and focus on this one thing, your cell. you are a highly focused person or you would not be here. you take that focus and put it on your yoga mat for a few minutes per day.
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>> eric wishes i was focused. on one thing focus right there. >> just so you know, that is what he was thinking right then. >> well, then you are a mind reader and you naturally bring that to the yoga mat. >> if you are going to make yoga a part of your life, what is inconsistent with the search for inner peace? do you need to give up other things? >> first, you add in one good habit. me an example. >> of a good habit? doing a little meditation or yoga every day. and then finding out and examining what some of your flaws might be. maybe you are very quick to anger. you might decide, well, when i start to get angry, i will detach myself and take a deep breath and i will not lash out. i will wait for a moment and see what happens. that might be one change you add.
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we have to unfortunately leave it there. thank you so much. i'm taking a deep breath. eddie stearns. ♪
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>> live, this is "market makers." teams may have made off with more than 300 million dollars worth of a virtual currency. >> the carlisle coke founder. things about the future of private equities and its impact on global business. nasty reports show a heht inside pimco maybe why
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left. we'll hear from the insider who knows exactly what went down. >> it is 11:00 here in new york city. >> living in newport beach, california, and you get into fights? it is time now -- when the lesnar -- when the weather is nice, it is time to go for a run. yoga. how did i miss that? top business stories around the world. let's start with jpmorgan. jobs --about 8000 cutting more than 8000 jobs. they have been hit with more than 24,000 job cuts. the problem is fewer people are refinancing their mortgages. the top 10 dealmakers, the publicly traded private equity 1.6 billionook home
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dollars in dividends. among the big winners, leon black, who took home about $369 23 million to investors in 2013. and, the federal government will propose new rules that will phase out the advertising of sugary drinks and junk food on school campuses. footballr pepsi ads on and basketball. help for your products could be advertised still. think dieta -- i soda is just as unhealthy. >> i do not shake it. quest that is my point. we will not advertise sugary drinks budget is with chemicals. >> i'm with you on that one. >> there you go. >> it is time to talk about blackberry. you know shares of the company are up more than 50% since john
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took over as ceo last year. that even as the company's future remains very much in doubt. interesting things are happening. investors are reassessing blackberry's value. why? blackberry's messaging service, people are thinking about that after facebook aussies $19 billion deal for whatsapp. worldke at the mobile conference taking place right now. here is this report. have a look. >> $819 billion valuation, reassessing the value of their model. hasg them, blackberry instant messaging services. already has a .5 million users. what is the valuation therefore? chief executive a black week if you would consider spinning that often the future. he said he has got to for the sake of his shareholders.
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>> running a public company, anything to help our shareholders, i need to take a very serious look at. that is a serious point here in today, we need to build up that base and build of the engagement model. the point is, i think the , our enterprise focus, will be huge. until we get to the point that we could showcase that potential, i think it is early to think about getting 19 billion. >> according to our calculations, the unit at the moment could be worth anywhere up to about $3.6 billion, if you are looking at the whatsapp valuation. interestingly, a light was shone on the fact the messaging service is very secure. this is such a hot topic here at the mobile conference. revelation, -- the
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privacy of e-mails, messages, and phone calls. this is something we wanted to shine a light on. >> nobody has a secure messaging infrastructure. we are going to has it. it is important we showcase and use that as a differentiator into the thousands and thousands of enterprise customers. the back on a wave on of the nsa scandal, many being able to see governments are now assessing our nature as well. they sounded optimistic overall. they chose unveiled we will have these two new blackberry products come april, starting off in indonesia. it is about emerging markets for blackberry and about rebuilding revenue. he said, give me to the end of my fiscal year, 2015. i want to make the company profitable. then judge me. with that, back to you.
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>> that was our european business correspondent, caroline hyde. >> some of the top names in finance for the super return international conference, brought cofounder, david rubenstein. cristina alesci spoke with him. give us the highlights. know, he's an on-chip in or who started the business back in 1987 with two other partners. i could not help but ask him about what he thought about the whatsapp deal. take a listen. >> i spent with my partners 26 years building this and we have a lower market value than this company which is only three years old. i thought i was in the wrong business. i wish i had started whatsapp but i did not know the company. i am a little out of it with respect to text messaging. it shows what is great about america and capitalism. people can start a company with
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a good idea and they can quickly get an economical word of it, whether it is the right price or not, time will tell. the facebook buyer seems very happy with the price. >> clearly very bullish on the deal. very good for whatsapp. what about facebook and what does it say about tech valuations overall? >> they are probably more robust than they were a few years ago. time will tell whether you overpay for something. facebook'sgiven what valuation is, roughly 10 times the price they paid for this company, and given the fact this company has 400 50 million users, i think it is probably a reasonable price. i do not really know the details of it. it does not strike me as the a billion as paying dollars or $2 billion for a company that virtually has no andnue and no earnings hardly any employees.
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that is not with this is. this has a lot of opportunity. it obviously was not very profitable yet. that was not their main concern. a lot of users. it may turn out to be a great acquisition. remember when google bought youtube for about 1 billion and a half dollars years ago, people laughed at it. how could you pay that for people who have no revenue. they have nothing. now it seems like a reasonable price. >> so, it is really hard to find david rubenstein bearish on anything. funs raising a series of throughout the world dedicated to specific regions and in emerging markets as well. he is again they're saying there are opportunities and you have to invest your money there. take a listen. is, there are still ups and downs and the fluctuations might be greater in some emerging markets. in the end, the greatest growth will be emerging markets. the greatest opportunities will be in those markets. if you avoid those, you will be left with little areas to invest
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in. >> there you have it. those sentiments are clearly being echoed here by a lot of the other private equity titans. other headlines, saying it is contemplating an ipo. as you know, that has been in the works for quite some time. back to you. >> i wanted to ask you about it. he says maybe we are not thinking too hard about it. what does that say though, is the ipo going to be the exit strategy echo in other words, if you want to realize before he has got to step out of line at some point, for him to realize everything he has put into it, maybe they go public and maybe they take cash out the way schwartzman did when blackstone went public, and then maybe he can go off and do whatever he wants. >> right. you bring up an excellent point. he said the firm is considering it. what sources tell me that
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are close to it, they're saying, there is real debate about this here and you have a bunch of younger partners who want to wait it out. reallytting up there wanting to see realization, to your point, to get out and establish a legacy, a long-term institution. >> all right. it is great to see you. keep it up at the conference in berlin, some of the world's biggest private equity heavyweights are busy there. .> all right cristina alesci in berlin. stay tuned. we have a lot more to cover here. news in just the past half-hour indicating possibly more than $300 million worth of bitcoin disappeared from the exchange before it went down. we will have that story when we come back. and, a clash of the titans, the world's biggest thought -- bond fund manager. stay with us.
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watching "market makers." the currency is virtual and the client may be very real. exchange that vanished overnight. three of the $65 million were stolen of bitcoin. nobody apparently noticed for several years. will learn more from carter, who covers the bitcoin phenomenon. bitcoin, able virtual currency that was to alld to be impervious kinds of things other markets are subject to, was the victim of 360 $5 million of theft? >> it is important to remember what
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-- there hass not been a lot of criticism for some time about the approach to customer service and how they stored bitcoins and whatnot. still, i do not think anybody was quite prepared for the notion they might've lost 744,000 bitcoins, about $365 million. >> we kind of brought this up with you earlier, but let's go back into it here the integrity of bitcoin as an industry, it has yet to be proven, doesn't that say something about that? >> what you will find a lot in the coming days is that the coin enthusiasts will distinguish between the technology, bitcoin, and the payment system as a way of securing value, and as a currency. as a currency, it is still very volatile. the infrastructure changes still very primitive by the standards
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of existing currency standards. it clearly has a lot of work ahead. i even if enthusiasts back bitcoin, from a regulatory standpoint, is it possible we could see lawmakers take one look at this and forget the details or the possible positives here and say, too much risk, to opaque, not happening, and shut the whole thing down? >> you can see a lot of ugliness. there challenges seem to first be unraveling at what happened at mt. gox. got going and then said, ok, we will worry about customer protection consumer and that sort of thing as we get going. regulators will not put up with that this time around. class going back to an earlier point, is it possible to disentangle the currency itself,
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and the an algorithm, markets of exchange that need to be associated with it. so long as business gets transacted in other currencies, and people need to exchange bitcoins into dollars or euros or whatever the case may be, you kind of cannot separate the two, and lets you just want to use bitcoin alone, which is still kind of difficult. >> in the lingo of economists, there is a currency as a store of value and the currency of exchange. bitcoin looks like a printable -- pretty reliable medium of exchange. the currency part is another matter entirely given the wild fluctuations. that is where you would go if you had a real appetite for risk. the long-term, you cannot separate them. into the -- enthusiasts hope in the long-term, once you get more liquid market, maybe you get
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options markets and other derivatives available that you could stabilize the volatility. >> a totally unstable market getting more stable when you pile on options and other derivatives, that sounds like a delicious recipe. >> it sounds almost scary. one of the things i have noticed in covering bitcoin is because it gets labeled a currency, people immediately start imagining a world where virtually everything can be denominated in bitcoin. i myself bought a tiny bit of a denominatedcoin share of stock, of a company on exchange base in panama. i only pay two dollars so i am not too worried. >> panama, throw-in options and derivatives, i love it. thank you so much for giving us the update. i want to continue more on this. an outspoken critic of the bitcoin phenomenon, the risk joinsment professor, mark us from boston.
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what do you make of all of this? >> i am not surprised. itself has low ethical standards. in regard to regulation, no regulation. they were not focus on consumers. putcustomers really seem to that second compared themselves. i am not surprised. it is really the microcosm of the problem with the industry. there is no high standard. i could argue the standard is very low and not united. we cannot expect to not see another blowup. that something else could happen like this tomorrow. >> ok, but is this what you predicted? when he looked at the flaws in the bitcoin industry, did you see vulnerabilities in a place like mt. gox, a bitcoin exchange? >> i did. you can look at my testimony i gave in new york in january. specifically, i had a section about exchanges and how weak
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their controls were. in particular, very concerned about consumers. the story should be that consumers are being taken advantage of. it is not about the new technology. it is the fact they have no comfort at all going into a deal knowing they will get what they need to get out of it. takenconsumers are being advantage of, by whom? who is profiting at the expense of the consumer? at the we look exchanges, they are very weakly aligned. consumers go in and they make an exchange and they want to buy it coin. they might have to wait anywhere between hours to days. we learn, for example, after cyber attacks, if you wanted to buy bitcoin, you are locked into your account for weeks. have two other exchanges where it would take watcher days before they would allow customers to trade again. the new york stock exchange, remember that having that, being locked up for quadra days the,
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that is not an exchange at all. it is a gambling casino. >> wire summit people supporting it? not just underground people. we are seeing widget guys. what do you think their motivation is? >> they want to commercialize it. it was not created to be commercialized. now they're taking something that doesn't really look like something that can be commercialized in an efficient way. it is not regulated and does not have any interest in being something that will be useful for profit purposes. it was set up for other purposes. whether we talk about the road or the fact the vice chairman of the bitcoin foundation was taken away last month from under the dash for money laundering, there is clearly an issue tied to bitcoin. >> there is. there have been previous challenges to bitcoin. it has proved pretty resilient. will this be the nail in their coffin? >> that is a great way. thats today drop below
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$500. the floor was set in november when it hit the peak. i was 1200. to me, as i called it back at the end of november and beginning of december, this is a bubble and the bubble started to burress. if we drop below even 400, you will see prices continue to drop down very quickly. >> you think this is it, we are at the end of the road here? happens, we're now looking more at the risk we should be looking at. in december, bitcoin was priced four percent -- for perfection. we are now seeing hey, there are a lot of flaws and we are seeing cyber attacks and $400 million takenof customer points away and stolen. these are anonymous coins. what that means is it is hard to trace criminals and get the money back. >> thank you. good to see you this morning. hard to get the money back if it
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is anonymous. money is just numbered anyway as well. when we come back, lawful versus egg mcmuffin. bell is squaring off against mcdonald's for your breakfast dollars. we will tell you this story. >> if anybody's going to do a breakfast rito, it should be taco bell. ♪
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quest coming up, we're looking at budget cuts. >> speaking of fights, we will tell you of the battle over breakfast. two fast food giants are going head-to-head.
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mcdonald's versus taco bell. this is "market makers" on bloomberg television. we are now on apple tv. we've got more to cover. stick around. ♪
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>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> welcome back. the egg mcmuffin better watch out. the lawful taco. taco bell is going to give mcdonald's serious competition when it launches its national breakfast many on march .7. i want to bring in a fast food breakfast king, a man who really understands these wars, the ceo of the new england consulting group. about advised both talk mcdonald's in the past. what do you make of the were? >> it will be quite a battle.
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there is a lot to be gained. be gaineds a lot to for taco bell and a lot to be lost i mcdonald's and other fast food chains that serve breakfast. is it a zero-sum game? 's gain is another's lost? >> it is not. i do not think mcdonald's will miss on this one. the guys who will lose are the cold cereal manufacturers. they have been losing all along and they will continue to lose because people are eating breakfast where they want to and not sitting down at the breakfast table to eat a cold cereal in their home. >> really? post raisin bran for breakfast now and have been doing so for 10 years, even while the mcmuffin has been available and the mcdonald's biscuit sandwich and all the other stuff i could get, i am going to change that now to buy a waffle sandwich at taco bell? references the most habitual
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time of day, but if you look at what most people are doing, they are eating less cereal in the morning and are going to donuts or, dunkin' starbucks, and taco bell will clearly do a good job because they are a first-rate operator and they have novel products. they are going to hurt mcdonald's very little. mcdonald's has done a brilliant job principally in coffee because breakfast is all about coffee. food east had the really put together. they have now done the coffee. >> you think people who are going to mcdonald's a few days and weeks for breakfast say, hey, i will run from the border and happened to be across the street? i've never gone to mcdonald's for breakfast. i cannot imagine myself taking a look at a waffle taco commercial and saying, i want to dig in. forne of the hardest thing all of us do is realize we are
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not typical of the rest of the planet. there are 20% of mcdonald's business today being done at records. they have done a brilliant job of making that a habit for it awful lot of people. they have now improved their coffee to a point where it is excellent. talk about move from not taking customers are mcdonald's? it will take customers who are eating at home. i do not understand that. >> no, all of the restaurants are taking business from home prepared breakfasts, which has been declining. all restaurants are growing. taco bell will take is from mcdonald's. it will principally be younger men who taco bell has targeted its is missed towards. they have done a brilliant job of that. the boo-hoo on variety. want variety. breakfastseen more than ever before. >> starbucks and dunkin' donuts,
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how do they fit into the mix? as important as he sate is, they have surely got an edge. >> coffee is critical and much harder than most people realize. if you do not believe that, try to repair a pot of coffee on your own at home. it is tough to do well throughout the day. a brilliantas done job of coming back with me café, i far better coffee than any sandwich shop ever had. to answer your question, starbucks and dunkin' donuts have both done coffee brilliantly from day one and they continue to. >> you think coke making this partnership is a mistake because people cannot make coffee well at home? >> it is not a mistake. renown has done a brilliant job of helping people make a very good cup of coffee at home. >> i thought you just said people do not make good coffee at home. >> it is very hard to make the coffee at home, particularly if you make it by the pot.
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it tastes fresh with your first cup and bert with the last cup and most people do not know how to make it at all. what they have done is they have taken all of the complexity out. even a dummy like me now can make a good single cup of coffee and you could come around an hour later and make yours taste just as good. >> one quick thing before we let you go. if coffee still is the secret weapon, what is the next one? go back to al restaurant that serves bad or instant -- inconsistent coffee. coming on very strong is steep. we are just learning how good he is for you and how many varieties there are of tea. very fast follower. shortly behind that, you have got all the varieties and jews. >> you're with us, we will have to share a cup of joe. thank you for joining us.
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thehen we come back, pentagon budget may be on a highway to the danger zone. we will have that for you next. into erikw schatzker's personality, he knew of kenny rogers. ♪
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>> next year's pentagon budget will approach $500 billion. half of it has nothing to do with weapons systems or training programs. and retirement benefits. costs are up sharply. if military is not careful, the pentagon could turn into a benefits provider and it also might fight the occasional war. richardson is a senior economist at bloomberg government and analyzes how policy decisions affect business. it sounds like something important and also something people have not yet fully recognized. >> you know, the benefits questioned the department of defense is facing is just a
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microcosm of the overall issue of entitlement reform in the country. the pentagon is facing a huge choice between military readiness now, making sure troops are armed and ready to confront all of the challenges that face it, and make fulfilling its commitment to benefit the future to our that -- veterans. it is a tough choice. the budget is forcing the hand of the pentagon. >> you use an important word. hang on. in addition to entitlement. that is reform. is that to suggest the pentagon might reform its own benefit system and perhaps get into some of the same kinds of debates that rhode island has gone into war the new york state might be getting into or illinois might be getting into? over what the current pay for future retirees is? class absolutely. the dod may find itself the leader for the country on the issue. there are reforms on this year
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passes budget. they want to lower the housing allowance. they want to increase out-of-pocket cost veterans pay for health care. they want to freeze military pay for senior officers. on the face of it, they found it to be somewhat reasonable budget cuts, spending that they will face a lot of opposition in congress. year and nolection congress and wants to go home talking about budget cuts to the military in an election year. >> in spite of the fact these are reasonable cuts? even members of congress could not see that? >> i think there is some understanding of the trade-offs the military is facing. the military is making a promise to those who served that the country will take care of them in retirement. the skyrocketing costs of benefits and pay, you know, these commitments come at a cost to current people.
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congress is recognizing this. >> people are wondering to themselves as they listen to the conversation, don't we draw a distinction between serving your country, particularly in a military, especially active --itary capacity, and being fulfilling some kind of public service job in the state of illinois? there is a difference. can crash the -- contractually maybe there is no difference, but it feels like there is a difference to me. class it is a big difference. the military is changing. it is changing the way other industries are changing. an 18-year-old today may not think they will stay attached to the military for 20 years, just like an 18-year-old who joined ibm does not think they will be attached to that corporation for 20 years. what the pentagon is arguing now is we have to change with the times. we can no longer support the skyrocketing benefits. benefits in the military have increased 40% more than in the
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private sector. we know what the private -- what the problems are in the private sector. class 40% more. that is extraordinary. thank you for joining us. quite an update. bloomberg from government in washington d c. class when we come back, a new account says the split was messy. we will talk about it with one of the former collies right here on market makers. ♪
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>> is the story you did not hear when mohammed stepped down as the ceo of pimco. a volatile atmosphere is described. .lashes at one point, they squared off with two dozen colleagues. a 21ported he said, i have year track record of investing excellence, what do you have? the response is, i'm tired of cleaning up your mess. he used a stronger word than that, when i cannot use on
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television. he's a former managing director at the firm, who is now the stated mr. -- state investor. were you surprised? i am sure you gathered and did your own independent reporting to hear there was a split between them, who have been colleagues for many years. >> one of the things you realize is when you are working for a firm who has a founder as strongly in control is bill, at the end of the day, it is his opinion that matters most. within a portfolio management company, you have the tension between portfolio managers and the business side. there were a number of natural possibilities for tension, which could crop up. i cannot say i fell off my chair. >> autocrat is a very strong word. for are that little room
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difference of opinion at pimco? >> as you know, pimco is a large global firm. many people are contributing to the success, not the least of which who are the new ceo and president, who are extremely capable and who i have worked very closely with for many years. the deputy cio aussies. they all carry a lot of weight on their shoulders. at the end of the day, when there is a critical issue facing the firm, bill will weigh in in a very forceful way and those who disagree do so at their peril. >> if mohammed's the partial was unhealthy for pimco and billing knowledge this month, -- this much, he wanted mohammed's what does pimco's parent, bill gross, the cofounder and chief investment officer, and what to the people he has put in place need to do to ensure this does not happen again? >> this sets up a healthy future
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for pimco. >> this is unhealthy. how does it make the firm healthy? >> it is difficult for any one individual. to square off on issues. eventually, bill, through both his position and legacy, will wear the other side down. you now have a different composition where you have a strong ceo and a very strong and and six verydent, capable deputy cio's. in many respects, the more power delegated to all of them, and taken from bill, the healthier the future of pimco. qwest doesn't still not all come bill isbill gross? if supposed to be contained, if you sandbox,the investing what is the guarantee he does not step out of the sandbox and walk around the rest of the playground?
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>> i am not aware of any new containing bills to the investing sandbox. you will have to educate me as to that. that was not the case. whose shoulders do -- does the responsibility rest to respect borders and allow management to run the business of the company and allow bill, i guess, to run the investment company act of -- company? >> i am sure they still enjoy ability to self govern without any extension interference. i do not see that being part of the equation. what i see is you have the structure now with three important non-business leaders, three important business leaders, and six important portfolio management leaders. together, it is a fairer fight than one-on-one. 9, or even a 6, majority of them disagree with
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bill, you have to think it will be a fairer fight than it has been in the past. qwest you have seen the tensions play out first hand at pimco. you were there for 19 years. to what degree do you think they are responsible for, in particular, total return fund's underperformance last year, not relative to the barclays index, but relative to chief competitors? >> obviously, when you make a pronounced rate call, where your belief is any increase in interest rates will cause the economy, as bill said, to stop dead in its tracks, which is not my view of where interest rates are headed, that statement, when carried through your portfolio, will come at a cost of performance when interest rates are rising. >> do you think he overruled mohammed on that? >> you're asking me to guess. i do not have that insight. qwest do you think tensions inside pimco were in any way
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responsible for the conviction? >> since the positions at pimco were largely consistent with what bill was writing in his investment outlooks, i would have to guess he got his way in the end. >> great to see you and thank you for joining me. the former managing director for pimco and now a managing partner . we will be back here in two minutes. ♪
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>> that will wrap us up. our first day in so long. qwest we had bruce richards here, bill powers here telling us and sharing some revealing secrets about the way things operate in pimco. show we wrapped up the with bill powers. i would say today, we have kept it real. qwest right now, we are still keeping it real here on bloomberg television going on the markets. here is olivia sterns. >> thank you. we are keeping it real. driving us trade into primitives. it is time for today's options inside trading advantages. we are joined to walk you through what is happening in the options market. we have to start with the s&p 500. record high today but it fell below the record closing level. a little higher. it has a raised its losses since the start of the year. what insight are options giving us into what way the benchmark
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might move? class there is a little profit taken at -- to be expected. we are seeing bullish action continue, looking from the weekly options, we are trading 1845 in the s&p. people are trading 184. the 1840 equivalent there. those andare selling buying the 183 put the tension -- protection. across fordit cam the weekly option. it is a probability trade. they only took in $.29 but they as weake $290,000 as long above 184 on friday. there is a 70% of ability that will break. class telling us traders are bearish on the s&p, basically. qwest alleged. they are selling a foot spread their. class i know options traders are volatility options.
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what are we seeing today echo class there is usually a correlation. markets go up and it goes down. they are 28% above december lows. below 14st getting right now and have been trading largely between 14 and 12 since october. a couple of false breakups and now we're are back to the channel again. people are protecting themselves and today, we thought 20,000 trade of the marsh 20 calls. today, we saw 30,000 contracts for march 15 and march 27. people want to hedge themselves. it is interesting it has not come down as much as the market goes up. qwest that is interesting. it is trading around 14 and 14.5. another stock in the news is ebay. it has been a lot of buzz around carl icahn, pushing the company to spin off its paypal unit. he has also come out and criticize ebay for lapses in corporate governance. what kinds of actions are you seeing on the back of that news? >> not a whole lot today.
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yesterday, we saw the push-up. that pushed four percent over the last 62 weeks, which is dismal. it has been trading in a range and yesterday it got pushed up to 56. foraw out of the money, but thousand of those and that pushed them to be at the money. they bought it for about $.50. to break even for 57 with the expiration friday, today, we're seeing a smattering of options. it looks like people are looking for upside action as the activism continues. go toit has less than 1.2 get to 57. alan banks also in the limelight today after j.p. morgan announced it is planning on cutting 8000 jobs. you have got it options track -- strategy. morgan stanley has been trailing this sector over the past five years. how will you play the morgan stanley options? class it is another stock substitution strategy. it is only a 30% compared to the
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-- the financial sector up. out --s a pivot at 28 $28 in morgan stanley in the last year. you have traded between 28 and 32 here for the last few months. the target is 36, 20% higher. trading.him one dollar higher. >> all right. if thert making money stock crosses above $31. that is it. thank you. we are back in 30. ♪
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♪ >> welcome to "lunch money." let's take a look at the menu -- ande got google vision -- mobile, blackberry, is it back? theceo has a pitch of meeting in barcelona. the pros and cons of a smaller military. david rubenstein talks dealmaking and 2014. -- in 2014. meet the robots


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